Case Study-Chinese Negotiation Training on Sales Price

Sales Negotiation Overview

K. G. Marwin Inc. developed a particular technology in the 1980s, called the Trilliamp Process, that the Chinese
government sought to buy and integrate into an ethylene facility in Lanzhou, the capital of Gansu province.
Marwin's successful sales negotiation resulted in a contract with Chinese Government, which in 1985 invited further
sales inquiries from U.S. and Japanese manufacturers for production of the machinery.

Marwin recommended the Japanese company Auger-Aiso as most capable of producing the turbines, while the
Chinese invited two U.S. companies—Federal Electric and Pressure Inc., which manufactured through the large
Japanese trading company Mitsubo—to compete for the multi-million-dollar sales negotiation contract.

The Scene
To undertake the negotiations with the three prospective sellers, six Chinese officials and three representatives
from the Bank of China were selected.

The Auger-Aiso chief negotiator was Todman Glazer, the company’s Japan branch manager from the United States
who resided in Tokyo and was assisted by his Japanese colleagues. Glazer remembered the tight deadlines he had
faced on previous trips to China; now positions had been reversed, with the Chinese facing the pressures and
deadlines. He realized his training lessons of thinking like one’s opponent—seeing things as they do. This was the
first potential sales deal with China in the ethylene market, and Auger-Aiso faced stiff sales negotiation competition
from Mitsubo, which had already cornered sales in the Chinese oil-processing market.

At the first sales negotiation meeting in Beijing, the Chinese insisted that custom required the visitor—Glazer—to
make the first sales negotiation presentation. This he did, even though he was trained to to allow his opponents to
speak first.

Glazer began by training his attention on the excellence of Auger-Aiso technology, explaining that the
manufacturing would all be done in Japan to ensure product excellence. When the Chinese offered no indication of
their position or sales price, Glazer's training taught him to quote an upper-range price that would allow flexibility.
The Chinese still made no comment.

In the afternoon, the Chinese heard sales negotiation offers from the combined Mitsubo-Pressure team, then
Federal Electric. By the end of the day, Federal Electric had dropped out of the sales negotiation race, accepting
that it could not compete.

Revolving Sales Negotiation Doors

During the first week of negotiations, a pattern emerged. The Chinese would meet with Glazer and his colleagues in
the morning and ask for a price, saying that their competitors had already bid such-and-such a price, which was
invariably lower than the last Auger-Aiso bid. They would meet with Mitsubo-Pressure in the afternoon and use the
same sales negotiation tactic, causing the latter to drop its price. Moreover, each meeting would end with the
Chinese saying, “We will call you tomorrow.”

But, because they never called, both prospective vendors became panicky and visited the Chinese office without
notice to present an even lower bid. As the Chinese kept the vendors guessing and in the dark, Glazer understood
how the Chinese had earned a reputation as master negotiators.

At the second meeting, sales negotiation tactics changed and there were different people representing the Chinese
side. An antagonist would suddenly burst out in loud Chinese and harangue the Auger-Aiso side for some fifteen
minutes, complaining about the quality of the machines they were offering. A protagonist would then intervene
and, apologizing for his colleague, saying he had been upset about the current sales negotiation situation.

Glazer regarded these outbursts as no more than sales negotiation training rehearsed role playing, designed to
make the protagonist (the good cop/guy) appear more trustworthy to the foreigners. But, Glazer realized, all the
participants had likely been training in play-acting.

Then there was yet another change. The Chinese located the Auger-Aiso and Mitsubo-Pressure teams near the
meeting room, in adjacent rooms. Mitsubo-Pressure would be called in and asked for its best sales price.

After the team had returned to its room, Auger-Aiso would be called in, told the latest sales price, and asked if it
could beat this. When the prospective vendors could drop their price no lower, they would add something to the
package. Auger, for example, added oil gauges for its turbines, effectively a three-percent add-on. Even so, the
Chinese's negotiation training mean't that they still would not commit to placing a sales order.
When the Sales Price Is Right
Glazer could hardly believe that he had lowered his price twenty per-cent that week; to do so would have been out
of the question in the United States. On the final day, Auger-Aiso made another sales negotiation offer—and, for
the first time, the Chinese made a counter purchasing negotiatioffer. Auger-Aiso accepted, and agreement was
reached. A few hours later, Mitsubo-Pressure came back with an even lower sales negotiation price, but the sales
deal had already been struck.

Glazer spoke later about how this was good training in just how difficult it was to compete with Japanese trading
companies, explaining that U.S. companies had so many factors to bear in mind, including insurance and a variety
of liabilities. Meanwhile, Japanese trading companies, which had vastly different legal parameters (within which) to
operate within, could more easily focus on getting sales negotiation contracts and closing sales deals. He believed
that Auger-Aiso had been awarded the contract because it had been the preferred supplier right from the start.

Sales Negotiation Training Lessons

In most respects, the Chinese negotiating style for big-ticket items has changed little over the past twenty years or
so. Vendors still go to China and submit to the pressures of intense sales negotiation bargaining, while the good
guy/bad guy routine remains a training tool of intimidation. Although Glazer saw through the sales training tactic, it
could still be the undoing of less-experienced foreign sales negotiators.

Glazer’s suspicion that Auger-Aiso was the preferred supplier from the beginning is plausible. One can only wonder
whether, had Glazer guessed that Auger-Aiso was the preferred vendor, he would have been less willing to drop his
sales price toward the end of the negoitation.

This case places less emphasis on the technical package and specifications, including installation, training and
engineering support. This may be because, over the years since 1985, the Chinese have become more
sophisticated in terms of quality requirements, whereas in the past price was the dominant factor, and its reduction
the best way of giving face. In the 1980s and 1990s, the Chinese bought a great deal of technology that could not
be applied and machinery that was inoperable without further training. From this the Chinese learned how to get
the best package at the best negotiated sales price.

Q1. Discuss Chinese sales price negotiation and bargaining tactics yields hard knock school of training lessons to
foreigners who make costly concessions?